After falling short of the disinvestment mop-up targets this financial year as well as in the previous one, the government aims to mobilise 25 per cent less through selling stakes in state-owned companies in the next financial year. “The government will raise about Rs 14,000 crore from disinvestment in 2011-12, against a target of Rs 40,000 crore. For 2012-13, I propose to raise Rs 30,000 crore through disinvestment,” Finance Minister Pranab Mukherjee said in his Budget speech. Terming next year’s disinvestment target ‘plausible’, market experts said the secondary market and foreign flows need to remain supportive to help achieve the target. The government missed the disinvestment targets in the current financial year and the previous one by huge margins, and this had contributed to the fiscal deficit. The government uses proceeds from the disinvestment programme to reduce fiscal deficit and invest in social sector schemes. Mukherjee also said the government was committed to retaining 51 per cent ownership and management control in public sector entities. (For details log on to : http://www.business-standard.com/india/news/sell-off-target-feasible-say-players/468037/)
NPCIL FORMS A NEW COMPANY IN JOINT VENTURE WITH NALCO
KOLKATA: Nuclear Power Corporation of India Limited (NPCIL) has formed a new company in joint venture with National Aluminium Company Limited ( NALCO). The new JV company, namely N PCIL-NALCO Power Company Limited was incorporated on March 2, 2012. The first meeting of the board of directors of the JV company was held in Bhubaneswaron Friday. NPCIL and NALCO signed a joint venture agreement in November last to form a Joint V enture c ompany for the establishment of Nuclear Power Plants in India. As per the JV agreement, NALCO has 26% stake in the newly formed company, which is proposed to be enhanced to 49% subsequently. The balance stake will be controlled by NPCIL, the sole producer of nuclear power in India. Both the companies have already selected Kakrapar U nits 3 & 4 of 700 MW each in Surat d istrict of Guj a rat as their first JV project with a n estimated project cost of Rs. 11, 50 0 crore. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/energy/power/npcil-forms-a-new-company-in-joint-venture-with-nalco/articleshow/12294087.cms)
PERMITTING FDI IN MF IS A BIG TICKET REFORM
The reiteration of the government to GST (goods and services tax ) is welcome. The finance minister also did well to commit that the financial sector reforms will be taken to their logical conclusion during this session of the Parliament, including the introduction of the Additional Banking Licences to corporates as well as the Companies Bill. The proposal to permit FDI in mutual funds is a big ticket reform and should positively address the decline in the growth of FDI in the recent past. The Budget is purposeful and pragmatic, considering that the Finance Minister had to manage fiscal challenges, slowing GDP growth, inflation and an uncertain global economic environment. His service tax initiatives signal a move towards a uniform GST, while contributing to government revenues. The increase in excise duty will hurt automobiles, at a time when industry is in the midst of a slowdown due to the combined effect of high interest rates and high fuel prices. The focus on rural growth and infrastructure, along with tax waiver for investment in skill development, are positive initiatives. (For details log on to : http://www.financialexpress.com/news/permitting-fdi-in-mf-is-a-big-ticket-reform/924864/)
IN POWER, FM WORKS ON FUEL & FINANCING
The Budget tried to build on the incentives to the limping power sector granted by the Prime Minister recently. It cut customs duty on thermal fuel for power companies and made financing easier. Calling it a sector which has been under stress, Pranab Mukherjee made a slew of announcements, an important one being a full exemption on customs duties for the import of thermal fuels for power plants – coal and Re-gasified Liquefied Natural Gas (R-LNG). Steam coal will get full customs duty exemption for two years (with the concessional counter-veiling duty of one per cent), natural gas, LNG and certain uranium fuel get full duty exemption. Though LNG prices, already high, may not be impacted, the measures would have an impact on imported coal-based power projects by reducing cost of fuel. “The customs duty exemption is good news,” said S Ramakrishnan, executive director-finance of Tata Power. The move could impact consumers through lower power tariffs though power companies per se would not benefit. (For details log on to : http://www.business-standard.com/india/news/in-power-fm-worksfuelfinancing/468009/)
RELIEF ON TAX TO HELP FERTILISER COMPANIES
Finance Minister Pranab Mukherjee on Friday slashed withholding tax on interest payments on external commercial borrowings (ECB) from 20 per cent to 15 per cent along with other boosters for the fertiliser sector. Industry players and analysts said the move would bring more investments into the sector. However, the Budget has been flayed for not doing anything substantial on the urea deregulation front. Besides providing relief on withholding tax for three years, the Budget has proposed exempting import of equipment for urea projects from basic customs duty of five per cent for the next three years, abolish customs duty on coal for the next two years and extend 200 per cent relief on research and development (R&D). The Budget also raised deduction on capital expenditure to 150 per cent from 100 per cent now and proposed to put in place a mobile-based fertiliser management system to track the movement of fertilisers and subsidies. However, players said lack of supply of natural gas would continue to hinder investments from flowing into the fertiliser sector. (For details log on to : http://www.business-standard.com/india/news/relieftax-to-help-fertiliser-cos/468018/)
A MIXED BAG OF GOODIES FOR FMCG PLAYERS
For the fast moving consumer goods (FMCG) sector, the Union Budget 2012-13, presented by Finance Minister Pranab Mukherjee to Parliament on Friday, has two significant dampeners — two per cent raise in both excise duty and service tax. Most fast moving consumer goods (FMCG), consumer electronics and durable products fall under the 10 per cent excise bracket. So, an increase of that rate, has a direct impact on the end-prices. The same is the case with service tax, too. A two per cent increase will mean a consequent pass-on to consumers. Clearly, both manufacturers and service providers, including retailers, are unhappy with the announcement. “I find this Budget inflationary,” says A Mahendran, managing director, Godrej Consumer Products Ltd (GCPL). “I don’t understand what was the need to do it when managing inflation has been such a challenge for the government and the central bank. Just when inflation was hovering in single-digits, here comes the hike in excise and service tax.” Naresh Bhansali, chief executive officer, Emami Ltd, says, “Increase in excise duty and service tax to 12 per cent from 10 per cent will severely impact the manufacturing sector, increase costs and will be inflationary for consumers. This is not be helpful in any way.” (For details log on to : http://www.business-standard.com/india/news/a-mixed-baggoodies-for-fmcg-players/468019/)
INDIA INC TAKES TAX HIKES IN ITS STRIDE
“Bold, rational and courageous. Can’t be applied across the board but certainly in segments like agriculture, infrastructure credit, education and skill development. No cause to sulk!” A tweet from Anand Mahindra, M&M’s Vice Chairman and Managing Director hinted on India Inc’s mixed mood. Only a few, such as Mahindra, admired the rooted-in-reality annual plan of the FM. Others termed the hike in excise and service tax — though on expected lines – inflationary in nature. “Key indirect taxes like services, excise have gone up. I am expecting around 3-5 percent price hikes on an average cutting across sectors,” said Kewal Handa, managing director of drug major Pfizer in India. “So far pharma industry has tried to hold on to prices. But we will have to go back to the drawing board to evaluate this round of hikes.” A few companies responded with price hikes. Tata Motors decided to increase the prices of its commercial vehicles and passenger vehicles with immediate effect. (For details log on to : http://www.business-standard.com/india/news/india-inc-takes-tax-hikes-in-its-stride/468024/)
PRANAB IS STAR OF THE ENTERTAINMENT SECTOR SHOW
“The year 2012 marks the beginning of the centenary year of Indian cinema. From Dada Saheb Phalke’s Raja Harishchandra to Ra.One, the industry has played a pivotal role in unifying our country in the wake of her considerable diversity,” said Finance Minister Pranab Mukherjee, in his Budget speech, on Friday. To add to the spirit, the minister has exempted the industry from service tax on copyrights relating to recording of cinematographic films. Earlier, film-makers and production houses were subjected to 10 per cent service tax on copyright. “The service tax exemption on the entertainment industry is a very encouraging step. This move can also be viewed as a way to offer some respite to the previously challenging situation the industry is facing, due to heavy taxation,” said Ashish Hemrajani, founder and chief executive officer (CEO), Bigtree Entertainment. Echoing a similar sentiment, Hiren Gada, director, Shemaroo Entertainment, said, “The service tax exemption is a very positive move. It was a big burden on the industry and had a lot of administrative challenges as well.” (For details log on to : http://www.business-standard.com/india/news/pranab-is-starthe-entertainment-sector-show/468028/)
DEFENCE BUDGET SHOOTS UP 17 PER CENT
Military spending has gone up by 17 per cent, or Rs 28,992 crore, to Rs 1,93,407 crore in the Budget. Finance Minister Pranab Mukherjee said this allocation was based on the needs projected by the defence ministry. For 2011-12, the spend was pegged at Rs 1,64,415 crore, an increase of 11 per cent over the previous year. However the three services together returned around Rs 3,000 crore of unspent money. The difference between the Budget Estimate for 2011-12 and the Revised Estimate for the same year was around Rs 3,000 crore. The capital expenditure of the armed forces — which goes into the purchase of equipment — was set at Rs 79,579 crore, a 15.7 per cent increase from last year’s capital allocation of Rs 69,199 crore. As much as 70 per cent of this amount will go into servicing contracts already signed. (For details log on to : http://www.business-standard.com/india/news/defence-budget-shoots17/468069/)
FISCAL DEFICIT PEGGED AT 5.1% OF GDP
Hit hard by slippages in direct tax collections and disinvestment proceeds and a higher subsidy burden, the Centre’s fiscal deficit is estimated to widen to 5.9 per cent of GDP in the current financial year against the ambitious target of 4.6 per cent. For 2012-13, therefore, Finance Minister Pranab Mukherjee has chosen to be a little more realistic, targeting a deficit at 5.1 per cent of GDP. Much of this reduction is predicated on anticipated higher revenues from increases in excise duty and service tax and a widening of the service tax net. This target, too, appears ambitious since it does not account for a higher subsidy burden if Parliament passes the food security Bill and global crude oil prices of over $115 a barrel. To finance the fiscal deficit for 2012-13, the government will go in for gross market borrowings of Rs 5.70 lakh crore, which is 11.5 per cent higher than Rs 5.10 lakh crore estimated for this financial year. (For details log on to : http://www.business-standard.com/india/news/fiscal-deficit-pegged-at-51gdp/468048/)
HEALTH GETS BOOSTER SHOT WITH ROBUST FUND INFUSION
Prime Minister Manmohan Singh has called India’s high infant and maternal mortality rates a national shame. In the Budget, the government has responded with a 58 per cent increase in allocation to the nutrition programme of Integrated Child Development Services (ICDS), targeting pre-school children and pregnant women. ICDS funds have gone up from Rs 10,000 crore in 2011-12 to Rs 15,850 crore in 2012-13. State health care has been expanded to urban areas. A long-planned urban health mission has finally been announced, though funds are not yet allocated. The National Rural Health Mission has received Rs 20,822 crore, up from Rs 18,115 crore last year. The Budget also contained duty reductions on certain life-saving drugs and surgical components. A concessional import duty regime, of 2.5 per cent basic customs duty with 6 per cent countervailing duty (CVD) and nil special additional duty, has been applied to parts for blood pressure and blood glucose monitors. Full exemption from basic customs duty and CVD has been extended to components for the manufacture of coronary stents, stent systems and artificial heart valves. (For details log on to : http://www.business-standard.com/india/news/health-gets-booster-shotrobust-fund-infusion/468084/)
LETHARGY CREEPS INTO RURAL JOBS, FUND FOR NREGS SHRINKS
Poor spending of the funds allocated last year had the finance minister shrinking the Budget for the National Rural Employment Guarantee Scheme (NREGS) this time around. NREGS has been allocated Rs 33,000 crore in the Union Budget 2012-13, as against Rs 40,000 crore last year. Last year too, under the Revised Estimates, the funds for NREGS had been reduced to Rs 31,000 crore. However, allocations for significant interventions in livelihood creation and rural road building, sanitation and drinking water have seen a remarkable increase in the Budget. The rural development ministry’s total allocation has gone up from Rs 67,138 crore last year to Rs 73,175 crore. It was Rs 72,061 crore in 2010-11. The Budget delivered booster shots to the following rural programmes: Aajeevika and the Women’s Fund: The programme, which was earlier called Swarnajayanti Gram Swarojgar Yojna and later the National Rural Livelihood Mission, has been allotted Rs 3,563 crore against Rs 2,412 crore last year. (For details log on to : http://www.business-standard.com/india/news/lethargy-creeps-into-rural-jobs-fund-for-nregs-shrinks/468065/)
BUDGET IGNORES IT’S TAX WORRIES
The Information Technology (IT) and IT-enabled Services (ITeS) industry has not been a focus area for Budget 2012-13. The Finance Minister has left several demands of the industry in limbo. Yet again, the Budget has emphasised the need for e-governance and the role of Aadhaar in various government programmes, but it left unaddressed the industry’s demand to remove the 18.5 per cent minimum alternative tax (MAT) imposed on Special Economic Zones (SEZs) and onsite software services. National Association of Software and Services Companies (Nasscom), on Friday, expressed its disappointment on the Union Budget Proposals 2012-13, terming them as a ‘lost opportunity’ for the economy. “Budget 2012 is disappointing on various counts — there is no focus on putting the economy on a high growth trajectory; fiscal deficit reduction is through higher taxation, rather than expenditure management,”” said the IT industry body. It also added that though APA has been introduced, the negative is that transfer pricing regulations have now been introduced for domestic transactions, further increasing the complexity. (For details log on to : http://www.business-standard.com/india/news/budget-ignores-its-tax-worries/468027/)
TRAVEL, HOSPITALITY TO BECOME MORE EXPENSIVE
NEW DELHI: Travel and hospitality sector in the country will be hit by the government’s decision to increase service tax to 12% as it will result in spike in costs, according to tour operators. “We expect tour prices to increase due to the cascading effect of the service tax increase resulting in an adverse impact on the travel and tourism industry as a whole,” Thomas Cook India Managing Director Madhavan Menon said. He said the inbound segment, already reeling under the impact of global slowdown in key source markets, would be further impacted with a decline in foreign tourist arrivals. “It will be a further dampener on the growth rate in foreign exchange earnings already estimated to be down to 16.7% in 2011 from 24.6% in 2010,” he added. (For details log on to : http://www.business-standard.com/india/news/travel-hospitality-to-become-more-expensive/160700/on)
GOVT HIKES CASH SUBSIDY FOR OIL PSUs
NEW DELHI: The government has hiked the cash subsidy it will pay to state-owned oil firms for selling fuel below cost in current fiscal to Rs 65,000 crore but has also hiked the cess upstream firms like ONGC pay on crude oil production to Rs 4,500 per tonne. “Crude petroleum oil produced in Indiaattracts a cess of Rs 2,500 per tonne under the Oil Industries Development Act. This rate was last revised in Budget 2006-07. As a measure of indexation, I propose to increase the rate of cess to Rs 4,500 per tonne,” Finance Minister Pranab Mukherjee said presenting Budget for 2012-13 in Parliament today. The increase in cess would result in Oil and Natural Gas Corporation (ONGC) paying Rs 4,000 crore extra while Oil India Ltd would have to shell out Rs 800 crore additional. Cairn India, which was recently acquired by mining group Vendanta Resources, would have to shell out about Rs 1,000 crore at peak production from its Rajasthan oil block. In the Budget, Mukherjee raised compensation the government will pay to Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp for selling diesel, domestic LPG and kerosene to Rs 65,000 crore for current fiscal as against Rs 20,000 crore provisioned in the budget estimate for 2011-12. (For details log on to : http://www.business-standard.com/india/news/govt-hikes-cash-subsidy-for-oil-psus/160713/on)
SOME CHEER FOR CONVENTIONAL POWER SECTOR
Energy is one of the most important indicators of the growth trajectory and sustainable development of an economy. With enhanced focus on climate change and clean energy, the quality of energy has attained significant importance. Hence, this sector was the most keenly watched in Budget 2012, not only in light of its impact on the common man but also in view of socio-economic factors and supply constraints. In India, fossil fuels are the most important source of energy accounting for nearly 40% of the energy basket. With crude prices in the international market spiralling up and India’s continued over-reliance on import, expectations were high from the Budget proposals. As petrol prices are under strain after deregulation of prices, the finance minister was expected to provide some relief in the form of duty cuts and incentives. (For details log on to : http://www.financialexpress.com/news/some-cheer-for-conventional-power-sector/924881/)
A MIXED BAG FOR LAGGING MANUFACTURING SECTOR
With definite signs of slowdown in manufacturing over the last few months, the industry expected some incentives in the Budget. However, the finance minister, as usual, had a challenge to balance growth and fiscal consolidation. The result, again as expected, is a mixed bag. The excise duty and service tax rate have been increased from 10% to 12%, a decision, which has not gone down too well with the industry. Further, barring certain products like coal, fertilisers, the excise duty has been increased from 1% to 2% in respect of items that were brought under the regime last year. There is a view that this could fuel inflation and negatively impact the manufacturing sector. However, there are few other measures that should bring some relief to the sector. (For details log on to : http://www.financialexpress.com/news/a-mixed-bag-for-lagging-manufacturing-sector/924884/)
POSITIVES FOR POWER SECTOR IN BUDGET
The Finance minister has presented a Budget aimed at sprucing up the country’s infrastructure and readying it for higher growth. Besides enhancing sectoral allocations, the doubling of the amount of tax free bonds to be raised for infrastructure in FY13 will go a long way in capacity augmentation in roads, power, railways, housing, ports, etc. Expanding the scope of viability gap funding and including various segments of agricultural infrastructure, telecom and also including oil- and gas-related infrastructure is also welcomed. The minister has rightly identified the criticality of external commercial borrowings (ECB) in infrastructure financing and to that end has rightly allowed ECB financing to play a larger role in sectors like roads, power, railways, housing, mining, etc. However, the minister has not mentioned anything on raising the annual cap of $ 30 billion that now applies for ECB in India. We hope that cap will be raised in due course. (For details log on to : http://www.financialexpress.com/news/positives-for-power-sector-in-budget/924901/)
REFERENCE TO GAS AS AN INFRA ENTITY HIGHLIGHT OF BUDGET
From a very specific petroleum industry’s stand point, I think the reference to natural gas as an infrastructure entity and the fact that custom duties might be reduced on the natural gas import is the highlight of the Budget. Natural gas as an industry help us in incentivising the companies investing in pipelines. If you don’t have the investments you can’t bring the gas to the consumers. He has outlined public-private initiatives in the sector and that would help build the much needed infrastructure in the sector. All this put together will invite investment in the natural gas industry. Then if you move further on the subsidy front, there is certainly some concerns to be addressed on the efficiency of the distribution of the subsidies in the system. That the changes the finance minister has outlined for improving the quality of the disbursement of the subsidies is the second highlight. (For details log on to : http://www.financialexpress.com/news/reference-to-gas-as-an-infra-entity-highlight-of-budget/924903/)
A COST REDUCTION ATTEMPT FOR POWER SECTOR
The budget proposals for the power sector offer a very intriguing mix of initiatives, reflecting a fair appreciation of the challenges facing the industry, and some quick-fix attempts to resuscitate it, while falling short of the fundamental changes necessary to place it on the path to growth. The finance minister rightly sought to address supply bottlenecks in coal and power, recognising public private partnerships as the key to capacity addition and that half of the overall 12th Plan investment will come from the private sector. Fuel shortages and soaring costs of primary energy have bedevilled the sector, and these are refreshingly addressed in the Budget. The commitment for Coal India Ltd (CIL) to sign a Fuel Supply Agreement (FSA) with power plants to be commissioned by March 31, 2015 is welcome and will help in securing project financing. (For details log on to : http://www.financialexpress.com/news/a-cost-reduction-attempt-for-power-sector/924892/)
OID CESS, SERVICE TAX HIKE ADD TO WOES OF OIL COMPANIES
The revenue of ONGC, the largest oil producer in the county, will get negatively impacted by R5,400 crore on account of the Oil Industry Development (OID) cess and the increase in service tax. This Budget has belied the hopes of the oil and gas industry. Breaking up the loss for ONGC, the OID cess means a hit of R5,000 crore every annum, while the increase in service tax adds another R300 crore. The increase in OID cess from R2,500 to R4,500 per tonne has increased the financial burden on the existing producers of oil substantially. The service tax is levied on the revenue generating services whereas oil exploration is not a revenue generating activity, and so there is a strong case of exemption of the oil and gas exploration from the ambit of service tax. (For details log on to : http://www.financialexpress.com/news/oid-cess-service-tax-hike-add-to-woes-of-oil-cos/924839/)
LEVIES PUT THE AUTO DRIVE IN SLOW LANE
Already reeling from a slowdown in sales, makers of cars – big and small, diesel and petrol – bikes and even builders of bodies for commercial vehicles (CVs) have found little to celebrate in the finance minister’s bag of budgetary proposals. A 2% hike in excise duties will raise prices across the board. At the upper end of the car segment, the excise burden has been hiked from 22% to 24% for cars with engines of between 1.2 litres and 1.5 litres; for cars powered by engines of 1.5 litres and above, the duty is now 27%. Car majors such as Maruti Suzuki, General Motors, Mahindra & Mahindra have decided to pass on the price hike, which ranges between Rs 3,000 and Rs 35,000. “It is a necessary evil right now and we have to live with it. We will have to pass on the excise hike and will not be able to absorb it,” says Pawan Goenka, president, automotive, Mahindra & Mahindra. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/auto/automobiles/budget-2012-levies-put-the-auto-drive-in-slow-lane/articleshow/12299312.cms)
LNG IMPORTS MADE DUTY-FREE FOR POWER GENERATION FIRMS
NEW DELHI: Benefits of Budget proposal to abolish five per cent import duty on liquefied natural gas (LNG) seem to be only for the power generation companies such as NTPC and Reliance Power. The Budget proposes that natural gas/LNG imported for power generation by a power generation company is being fully exempted from basic customs duty. Taking a dig at the proposal, industry observers say it seems more political than anything else. Though there has been a demand from the power sector for gas, not many in power are buying imported gas as is the case with others. The industry was expecting that import duty on LNG will be for all sectors, a move that will not only benefit the importers but also consumers from like sponge iron and fertiliser sectors, besides power among others. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-budget/article3003944.ece)
RETROSPECTIVE CHANGES RAISE QUESTIONS ON CERTAINTY OF TAX POLICY
Pranab Mukherjee presented the Union Budget 2012 in the backdrop of ‘a year of recovery interrupted’. India’s GDP growth slowed down to 6.9% in the current fiscal from 8.4% in the previous two fiscals primarily due to weak industrial activity coupled with a contraction in investments. Several additional factors contributed to this slowdown — persistent and high inflation, monetary tightening, expansion of trade deficits, weakening of the rupee, negative global developments and domestic political uncertainty. The Budget this year aims to revive India’s growth story through policy measures designed to bring about equitable growth to all stakeholders of the economy. While corporate tax rates remain unchanged, there is relief on the personal tax front with the raising of the exemption limit from R1,80,000 to R2,00,000 and a further widening of the income tax slabs. (For details log on to : http://www.financialexpress.com/news/retrospective-changes-raise-questions-on-certainty-of-tax-policy/924894/)
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